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Retailers collect an enormous amount of information about their customers. Many of them use loyalty programs to get even more insights into our shopping habits.

Consumers aren’t clear about what is being collected and how it is shared and different age groups worry about different things. The trick is to read the fine print of the loyalty program and if you’re still not satisfied, give them a call and get an answer. The more informed you are the better you’re able to judge whether it’s a good thing or not.

Many retailers have moved online where sophisticated software gives them the power to gather much more info than you think. These include Loblaws, Sobeys, Shoppers Drug Mart, Hudson’s Bay Company, Safeway and Shell Canada as examples. Even Canadian Tire is looking at how it can join the online loyalty world, even though it has no plans to get rid of its paper currency.

One reason loyalty programs collect so much information is to predict which items customers might buy in the future.

A research paper funded by the federal privacy commissioner's office states that it is impossible for consumer's to enjoy the advantages of a loyalty card without accepting this information collection.

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Consumers should review the company’s terms and conditions, and privacy policies, and contact the organization directly if they have questions. Understand the implications of participating in such programs, and the scale and scope of personal information associated with such incentives, before you sign up.

In a recent research paper for the non-profit Public Interest Advocacy Centre (PIAC), Jonathan Bishop argues that tough rules are needed to protect consumers. This is because collecting information is the ultimate prize for customer loyalty program providers.

“The collection and analysis of that data has a direct correlation to increased profits for Canadian retailers, as well as greater consumer satisfaction,” he said.

The PIAC report has a case study of the long-standing relationship between Air Miles and Shell gas stations.

Air Miles has been at the forefront of consumer data collection for decades. It provides its partners with information about consumer behaviour so retailers can build marketing tactics to increase sales.

The study uses an example from the 1990s. Shell determined it had too many gas stations and wanted to reduce its network by 20 per cent, while renovating other outlets. It had to identify which stations to close, which to renovate and how to keep its customers throughout the process.

Shell discovered that members of the Air Miles program accounted for more than 50 per cent of each location’s total revenue. Half of the loyalty customers generated 86 per cent of the sales.

Shell and Air Miles used direct mail and in-store marketing to tell customers of a location’s upcoming renovation, guiding them to the nearest alternative gas station. They offered double Air Miles for purchases made at the new site and double and triple miles to return to the newly renovated location.

Shell was able to keep about 75 per cent of its customers during the renovations, and in response to offers, customers increased their spending by 7 per cent. That means a substantial number of Shell’s customers drove further and spent more while their most convenient location was closed.

That example is now 20 years old. Technology has improved and the amount of data collected by retailers has ballooned. One industry observer indicated the amount of customer information collected doubles every 18 months.

The PIAC study noted that concern about privacy is consistent, yet what loyalty program customers like or dislike about programs varies.

Here’s what two-thirds of those over 50 categorize as “creepy and weird”:

Allowing programs to look at your “friends” to determine your eligibility for benefits.

Offering you benefits in exchange for personal information on income and who lives in your house.

Determine your location using your smartphone and offer you deals if you are nearby.

The same study found that half of those in the 16-34 group were far more open to some of these things, including:

Personalized discounts on favourite items, based on purchasing habits.

Personalized offers based on preferences the consumer manages and updates.

Special benefits to those who “like” or “follow” a program on Facebook or Twitter.

Roughly four in 10 of those surveyed worried about Facebook’s ever-evolving privacy settings, but only 18 per cent were concerned about loyalty program operators abusing their personal information. Nearly half were more likely to share personal information with brands that offer rewards.

We all love getting a reward for the things we buy every day. But the reason loyalty programs exist is to attract new customers and to encourage existing customers to spend more.

Correction- Aug.21, 2014: This article was edited from a previous version that misquoted a spokesman for the federal privacy commissioner's office.

Hyper-targeted advertising - Ads are tailored based on knowledge about you and your buying behaviour. Coupons can be sent to your smartphone to anticipate your stored shopping patterns.

Social media - Google searches, Facebook posts and Twitter messages. Facebook has the most comprehensive database ever gathered on social behaviour. It gives insights into how ideas or trends spread, or the extent to which future actions are influenced by communications with friends.

Location tracking – Many people geo-tag their location with their phone or tablet. It’s possible to predict a future location by tracking the phone. A company could predict when you go on coffee break and where you tend to go so that it can offer a special coupon just as you are heading out the door.

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